Abstract
Purpose
This paper aims to analyse the determinants of business start-ups and their impact on entrepreneurial performance. The theoretical part indicates that the importance of small- and medium-sized enterprises (SMEs) considers the role of entrepreneur in the business process and provides an overview of theoretical and empirical findings in the main determinants of business start-ups.
Design/methodology/approach
The empirical part is based on quantitative survey results from a model of business start-up factors and relations with the entrepreneurs' performance. The data were analysed using the statistical package for data analysis SPSS for Windows. The factor analysis was performed separately for the set of variables that have measured the reasons for founding the start-up, the personality traits, environmental factors and performance. The paper used a multiple linear regression model to identify the strength, direction and impact of different factors on the start-up performance.
Findings
In general, the study identifies which indicators influence entrepreneurs' performance (personal and business) in the first years of their companies. The paper revealed the heterogeneity of the measures for performance and their different natures (from financial indicators to those related to the entrepreneur satisfaction). Consequently, one of the most significant findings of the research is that, in spite of the fact that the most commonly used indicators for the firm performance in the literature are financial, the paper should not neglect the so-called perceived performance. This is how entrepreneurs are satisfied with their success.
Research limitations/implications
The study is limited to Slovenian SMEs, but can be generalised to other regions. The study offers notable contributions for research and practice (improvements in SME environmental factors).
Practical implications
The personal traits and appropriate business environments can have beneficial effects on the entrepreneur's perceived performance. The findings can be used to guide the government in efficient management of different dimensions of entrepreneur environment.
Originality/value
This study proved the existence of latent elements of the entrepreneur's perceived performance. It gives valuable information, which hopefully will help the policy makers and entrepreneurs to give greater respect to the meaning of critical personal and environmental factors.
Keywords
Citation
Omerzel Gomezelj, D. and Kušce, I. (2013), "The influence of personal and environmental factors on entrepreneurs' performance", Kybernetes, Vol. 42 No. 6, pp. 906-927. https://doi.org/10.1108/K-08-2012-0024
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited
1 Introduction
The identification and understanding of determinants that influence the performance of companies is crucial and necessary for the creation of appropriate economic policies. It should be emphasised that only those companies that successfully survive and at least meet the expectations and objectives of their owners are important. This is especially beneficial for small- and medium-sized enterprises (SMEs) as there are some difficulties in determining when a young SME can be argued to be successful.
Entrepreneurship has many facets. It can be described as a process of business creation (Kuratko, 2005, p. 577). It is a career option when the entrepreneur decides to exchange his/her place of employment for other possibilities and to ensure his/her survival and development on his/her own. It is a way of exploiting or even creating business opportunities. Bosma et al. (2012, p. 15) define entrepreneurship as a dynamic process in which business opportunities are constantly being born and entrepreneurship is the opportunity for encountering the businesses and the needs of individuals on the market. In Slovenia, entrepreneurship has come to full development mainly since 1991 when Slovenia became an independent state and, therefore, increased competition led to economic difficulties for large companies, which had to adapt to decreased market demand. This was followed by the rapid creation of new small businesses that have helped to the difficult economic situation and employed a large share of the unemployed people (Tajnikar, 2000). Slovenia experienced the next significant moment in its economy and in the development of entrepreneurship as well in 2004, when joining the European Union. Unfortunately, early-stage entrepreneurial activity recently declined, falling from 4.6 to 3.6 per cent in 2011 (Rebernik et al., 2012). The recession cannot be the only reason; an unfriendly, uninspiring and unregulated business environment is a factor that potential future must take into account when deciding whether to set up a business or not.
For the generation and for the performance of new firms, in addition to environmental factors, personal factors are also crucial (Baum et al., 2001; Hankinson et al., 1997; Hussin, 1997; McClelland, 1961; Olson and Bosserman, 1984).
Therefore, the aim of the paper is to:
identify key factors for business start-ups, personality factors (the founding reasons and personality traits) and environmental factors; and
determine which of these factors affect and which are essential for the entrepreneur's performance.
2 Theoretical framework
Entrepreneurship is a global process and phenomenon of recent decades, and it seems it will be even more prominent in the coming years. Entrepreneurial-minded individuals around the world play an extremely vital role in society, perform businesses that contribute to the growth of the national economy, create new jobs, and when producing new products and services they improve our quality of life. Starting their own businesses, entrepreneurs spend their time and efforts and assume financial, psychological and social risks. What motivates entrepreneurs to invest so much effort towards the long journey to success? Although many are interested in starting a new business and even have suitable support and funding, only few decide to take this step. The characteristics of individuals, the behaviour of individuals, the nature or type of business start-up and characteristics of the environment in which a newly created company operates are decisive factors for the firm's performance (Gartner, 1985). Entrepreneurs, as they are most powerful and influential people in their firms, play a dominant and significant role in the process of its development (Wincent and Westerberg, 2005). As they are supposed to be leaders, their personality traits affect their firm vision and strategy (Peterson et al., 2003). If entrepreneurs possess certain traits, this enables them to perform their roles well (Judge et al., 2009). There are many studies dealing with entrepreneurial traits (Wincent and Westerberg, 2005; Cools and Van Den Broeck, 2007; Murali et al., 2009; Dov et al., 2010; Oben Ürü et al., 2011).
Elements such as changes in lifestyle, decisions about starting a business, desires for achievement, desires for change that occur as a result of dissatisfaction with current working conditions and desires to follow the traditional family model of entrepreneurship were studied by Shapero and Sokol (1982). Bird (1988) states that both, personal characteristics and environmental factors, define entrepreneurial intentionality. Aldrich (1990) believes that the entrepreneurial personality characteristics are of secondary importance and that they only partially contribute to the understanding of the firm's establishment process. The studies of the role of the environment have stated that studying environment factors (Peterson, 1980) has prevailed as a more reasonable approach. Environmental determinants (social, economical, political, technological) significantly affect the process of the firm's establishment. In the previous two decades, many models have been developed that included different factors influencing the firm establishment.
Entrepreneurial research has developed along two main lines:
the personal factors (characteristics or traits of the entrepreneur); and
the influence of the environment (social, cultural, political and economic contextual factors).
2.1 Personal factors
The personal factors, which are shown in the following part, were taken from different authors (Shane et al., 2003; Kuratko and Hodhetts, 1995; Gartner, 1985). They were integrated into our own model of business start-up factors. For the purposes of this research, we will include the:
founding reasons; and
personality traits among personal factors.
2.1.1 Founding reasons
By examining the founding reasons, we aim to identify the main reasons entrepreneurs start their own businesses. Entrepreneurs have different goals when starting a business venture, many of them are nonmonetary such as the desire to be independent and one's own boss. The entrepreneur must make a decision to invest resources and substantial time to plan, launch and manage a new venture. As accomplishing these tasks is difficult, the entrepreneur must have strong motivations for doing so. These motivations are different from one entrepreneur to another (Dunkelberg et al., 2013). The decision to start a business occurs when an individual perceives that the founding of a company is desirable and possible (Antončič et al., 2002), and it is based on both personal and subjective motives. Negative experiences and frustration with their current work environment or even the loss of job can be motivation factors. Entrepreneurship is often described as a way of life, motivating people to achieve goals, building an organisation and desiring the entrepreneurial harvest.
It is often said that the reason for the decision to become an entrepreneur is independence and not having to work for someone else. Therefore, the desire to be one's own master is obviously what leads entrepreneurs around the world to take social, psychological and financial risks and work many hours to start and develop successful new businesses. The results of the study of Townsend et al. (2010) indicate that entrepreneurs with high expectations are more likely to start new ventures while entrepreneurs with high levels of uncertainty regarding their ability to fulfil the role of being an entrepreneur are less likely to start a new venture.
Although the financial aspect is often cited, most studies show that other personal reasons are far more powerful than financial reasons (Ruzzier et al., 2008).
2.1.2 Personality traits
Personal traits are enduring characteristics of an individual manifested in a consistent way of behaving in a wide variety of situations (Herron and Robinson, 1993). Personality traits are identified as antecedents of entrepreneurial watchfulness to business opportunities (Ardichvili et al., 2003). The possession of certain personal traits enables entrepreneurs to perform their roles well. The absence of certain traits may disable an individual from emerging as an entrepreneur. Different personal traits of entrepreneurs have been investigated in the previous research. We decided to include seven of them in our research:
desire for independence;
need for achievement;
self-confidence;
locus of control;
risk taking propensity;
knowledge and information; and
recognition of opportunity.
The need for achievement was proved by McClelland (1961) in his motivational theory based on performance. This theory was particularly suitable for the interpretation of entrepreneurial theory (Locke, 1991; Miner, 1980). According to McClelland (1961), individuals with a high need for achievement are able to evaluate certain tasks and are also able to perform them well. The need for achievement is one of the most significant dimensions related to entrepreneurship (McClelland, 1961; Gurol and Atsan, 2006; Papadakis, 2006).
Self-efficacy is the confidence in your own abilities. It indicates one's belief in one's capabilities to exercise control over events in one's life (Wood and Bandura, 1989). There is a possibility that the perception of self-efficacy is one of the most distinctive personality traits of the entrepreneur (Antončič et al., 2002).
We should understand the locus of control as an individual's perception of his ability to influence the course of life (Begley and Boyd, 1987). Individuals with an internal locus of control believe that they can influence their life. People with a higher internal focus of control seem to be more entrepreneurial than ones with a lower internal locus of control (Diaz and Rodriguez, 2003). Rotter (1966) suggested haw to measure the locus of control, and he proposed understanding it as an internal-external characteristic.
Several studies confirm that with entrepreneurs the ability of internal control is more expressed than with others (Greenberger and Sexton, 1988; Caird, 1991). Individuals who are internally motivated create companies that survive (Gimeno et al., 1997), as well as companies that are growing faster than others (Lee and Tsang, 2001).
A propensity for risk-taking is a tremendously significant dimension in the field of entrepreneurship and refers to the individuals who are predisposed to take risks when faced with situations that could be uncertain (Gurol and Atsan, 2006). Acceptance of risk, financial, social and psychological is a part of the entrepreneurial process. Entrepreneurs are adverse to risks that are uncontrollable in nature but often, due to their excessive self-confidence and conviction about their own decency, they enter risky situations (Wu and Knott, 2005; Ruzzier et al., 2008). The propensity to take risks is also a factor that encompasses other personality traits (Nicholson et al., 2005).
Some individuals enter into business with limited knowledge, experience and abilities. Delmar and Davidsson (1999) believe that an accumulation of information and experience is necessary for the initial self-confidence of individuals in their knowledge and skills. Knowledge, experience and skills enable entrepreneurs to obtain other resources (Cruz et al., 2012), and entrepreneurial success is more easily achieved when more knowledge is present (Davidsson and Honig, 2003; Dimov and Shepherd, 2005). Education and previous employment experience as factors of entrepreneurial intention have been studied by McMullen and Shepherd (2006).
Entrepreneurs are generally not aware that the lack of knowledge may entail an underutilised business opportunity, and thus a missed opportunity for the company's growth and increased productivity, and hence competitiveness. It often happens that entrepreneurs need external consultants to show them how to create new added value (Ruzzier et al., 2008). At the beginning, entrepreneurs are often alone in leading the company. They are helped by some consultants, but with an increasing number of employees and the change of the firm size, complexity and geographical dispersion, the managerial skills of the entrepreneur are becoming increasingly valuable (Antončič et al., 2002). General business experience includes the skills needed to exploit the business opportunities and involve the skills of sales, negotiation, leadership, planning, decision making, problem solving, and organisation and communication (Shane, 2003). Entrepreneurs with more managerial and industry experience usually set up faster-growing companies (Bruderl and Preisendorfer, 1998; Lee and Tsang, 2001; Ronstadt, 1988).
The ability to recognise good business opportunities in terms of the individual is also beneficial in the process of becoming a successful entrepreneur (Shane and Venkataraman, 2000). One has to identify and select the right opportunity for starting a successful business venture and having the ability to do so is one the most valuable abilities of a successful entrepreneur (Ardichvili et al., 2003; Shane and Venkataraman, 2000). Recognising opportunity is also the most important action in the entrepreneurial process. In many cases, all of the entrepreneurial process starts from this action (Baron, 2007).
2.2 Environmental factors
The establishment of a new firm requires some external resources and information. The environment is a pool of resources; the degree of resource abundance is called environmental munificence, and it will significantly influence the start-up process. We found many environmental factors in different research papers, but we will present only those that will be in the focus of our research:
financial support;
government (policy and programs);
education and training;
business and professional infrastructure;
openness and competitiveness in the domestic market;
access to physical infrastructure; and
cultural and social norms.
In addition to financial support, government policy needs to consider making the application process easy and enterprise-friendly during the start-up process. Later, it should provide support for the growing and dynamic entrepreneurs, as well as incentives to new companies in the initial stages of growth (Gartner, 1985; Radas and Božić, 2009).
The quality of education and training for entrepreneurship is essential (Gartner, 1985; Bull and Winter, 1991). This refers to the various programs of formal education, as well as for training programs of entrepreneurs and employees of SMEs. Having external links with other companies and having links with academic and research institutions is extremely beneficial in the process of acquiring knowledge as well (Radas and Božić, 2009).
The quality and accessibility of business, legal and technical infrastructure, and incubators needed by newly established and growing businesses are also essential (Gartner, 1985; Bøllingtoft and Ulhøi, 2005; Grimaldi and Grandi, 2005; McAdam and McAdam, 2006). For the success of the entrepreneur, the various consultants in their social network (friends, relatives, friends, etc.) and various professional consultants are crucial for their performance (Marett, 1980; Gartner, 1985; Johannisson, 1988; Ruzzier et al., 2008). Through the provision of a favourable business environment, newly founded firms are enabled to grow and survive. Entrepreneurs should easily have access to physical infrastructure, such as telecommunications, energy and utilities supply, etc.
In their study, Lagace and Bourgault (2003) and also Zain and Kassim (2012) present the factors affecting firm competitiveness; furthermore, they show that the competitiveness of a firm positively influences the firm s performance.
Cultural and social norms, i.e. preferences or aversions in confronting entrepreneurial activity have an enormous impact on entrepreneurial activities. In societies in which the culture respects people who have successfully created a new business, more new businesses will be produced. Areas with a meeting place for entrepreneurs and potential entrepreneurs, where they can discuss ideas, problems and solutions, usually contain more firms than other areas (Antončič et al., 2002).
2.3 Performance
Because the firm's founders differ in their personality traits and they also perceive the business environment differently, their start-ups also vary in many characteristics. We believe that the characteristics of entrepreneurs and the business environment of small enterprises are also strongly correlated with the success of the entrepreneur. We can understand success as the achievement of goals and objectives as they were set.
The performance of the firm reflects two aspects: the business performance of the firm, and personal performance and satisfaction of the entrepreneur. Exploring the factors of enterprises' success is an extremely common topic in the literature. Performance can be viewed from different angles, and consensus regarding what the most reliable performance factors are has not yet been achieved. In particular, there is no agreement on how to measure the success of start-up SMEs. When can a young SME be argued to be successful? Since our research population represents SMEs that have been active no more than two years, we decided to base our research on two research studies, first performed by authors Perez and Canino (2009) and the second by Reijonen and Komppula (2007). We agree with Perez and Canino (2009), who say that the first years of business are highly unstable and that it is a critical period for the company. During that period, SMEs can achieve relatively poor results, paying high interest rates and generally high total costs; nevertheless, we should not say that they have failed. We are in complete agreement with the authors that there are some doubts about relying on financial indicators of the SME performance. It is therefore necessary to find innovative success measures of entrepreneurs of a non-financial nature. Furthermore, in their study, Perez and Canino (2009) clarify and confirm “the relationship between how entrepreneurs understand the success of their business and the actual performance of their business.”
To a large extent, we also agree with Reijonen and Komppula (2007), who state that for the entrepreneur, i.e. the owner of SME, the most powerful indicators of their small- or medium-sized enterprise effectiveness and efficiency are (in particular) satisfaction at work and satisfied customers. They confirmed that the entrepreneur's perception of the success and growth of the firm's impact on the performance of their SME. Rather than maximising the profit and financial performance of the SME, the entrepreneur may prefer the independence and lifestyle afforded by being an entrepreneur.
The dimensions of the personal performance of a small business entrepreneur measure the non-financial objectives of the entrepreneur (Cooper, 1993), which may include personal satisfaction (Shane and Venkataraman, 2000). Entrepreneurs who decide to start their own business for reasons other than financial ones record a higher level of satisfaction compared to those entrepreneurs which are pushed into business purely for financial goals (Cooper and Artz, 1995; Drnovšek, 2002). If a firm is relatively successful, but does not meet the goals and expectations of the founders, it is limited in the development, or the entrepreneur can even close down such a firm.
3 Empirical analysis
Hypotheses and data collection
Based on the literature, we expect that personal factors, including founding reasons and personality traits, and environmental factors influence the performance of the entrepreneur. We thus propose our model of SME performance (Figure 1); accordingly, we posit the following hypotheses:
H1. The personal factors, including founding reasons and personality traits, affect the performance of the entrepreneur.
H2. The environmental factors of a business start-up affect the performance of the entrepreneur.
The empirical part is based on quantitative survey results from our own model of business start-up factors and relations with the entrepreneurs' performance of their firms.
To test the hypotheses and determine the nature of the relationships, data were collected using a mail survey of Slovenian firms. The sample of 731 respondents (approximately 8 per cent of the population) was determined with a simple random sampling from a population of newly established micro- and small companies in Slovenia, all with domestic capital. We included in our population firms that were not more than two years old. The questionnaires were anonymous and sent to entrepreneurs by standard mail.
The questionnaire
At the beginning of the questionnaire, some demographic questions appear (age, gender, formal education). Questions relating to the assessment of the importance of the possible reasons that have affected an individual's decision to start a business (economic necessity, earning, good reputation in the society, desire for success, personal growth, continuation of family tradition, achievement of life goals, independence, the job security, coincidence, experience, good business idea, dissatisfaction with the work and influence from relatives or friends), questions about the personality traits of entrepreneurs (desire for independence, need for achievement, self-confidence, locus of control, risk taking propensity, knowledge and information, and recognition of opportunity) follow. The next set of questions concerns the evaluation of statements in relation to the characteristics of the business environment (financial support, government (policy and programs), education and training, business and professional infrastructure, openness and competitiveness in the domestic market, access to physical infrastructure, and cultural and social norms). The questionnaire ends with the statements in connection with the performance of the firm (profit, sales, market share, general atmosphere in the firm, products/services offered by the firm, satisfaction with staff, satisfaction with working conditions, satisfaction with wages, overall satisfaction with regard to previous expectations, the firm's potential for growth in the future, realisation of life goals, the professional development and networks).
For each of those dimensions we set up different statements (Likert scale, from 1 – totally do not agree to 5 – totally agree).
Before the survey was performed, the questionnaire was tested on a group of ten randomly selected entrepreneurs. Most of them had no comments regarding the comprehensiveness of the survey questionnaire; however, some of them did give us a few comments on other aspects. Two questions were deleted; four issues were corrected in accordance with their proposals. The questionnaires were sent to a random sample of 731 entrepreneurs. We received a total of 116 correctly completed questionnaires, which represents a 16 per cent rate of response.
Statistical methods
The factor analysis was performed separately for the set of variables that measured the reasons for founding the new firm, the personality traits, environmental factors and performance.
We analysed the impact of individual sets of influential factors on the performance of the entrepreneur by using multiple regression analysis. The parameters of the multiple regression model were estimated and further evaluated using the Enter method.
4 Analysis
Sample description
The gender structure of respondents showed that there were 69.4 per cent male entrepreneurs and 30.6 per cent of female entrepreneurs. The majority of respondents (61 or 52.6 per cent) were from 30 to 40 years, 17.2 per cent of the entrepreneurs were from 20 to 30 years, 17.2 per cent were from 40 to 50 years and 11.2 per cent were older than 50. Most entrepreneurs (44 per cent) had completed college or high school, 35.3 per cent had completed vocational or high school, 15.5 per cent had completed master's studies, and only 3.4 per cent of entrepreneurs had finished only primary school. Most respondents, almost 70 per cent, were employed before founding the company, 13.3 per cent were unemployed, and 9.7 per cent were students and 4.4 per cent self-employed.
Next, we determine whether the initial reasons vary depending on the specific groups of entrepreneurs, i.e. on gender or on age group. The t-test showed that there is a statistically significant difference between men and women only in the founding reason “continuing the family tradition”: this reason is more important for women than for men. We can conclude that women are increasingly opting for the establishment of business in order to continue the family tradition than men are. Using the analysis of variance according to age groups, we found the statistically significant difference only for the founding reason “personal growth”. For younger entrepreneurs, this reason is much more powerful than for older entrepreneurs (in the age group from 20 to 30 years, the average score of this variable was 4.65, in the other age groups the average score was between 3.55 and 4.04). We can assume that young people are generally much more enthusiastic and motivated in this area, compared with older people who have perhaps already experienced such realisations in their professional work.
Factor analysis
Principal axis factoring was used as the extraction method; direct oblimin rotation was selected as the rotation method. When deciding on the number of factors (for funding reasons, personal traits, environmental factors and performance), we took into account the eigenvalue, the share of variance explained, and the scree plot.
Founding reasons
Founding reasons were measured by 14 variables: economic necessity, earning, good reputation in the society, desire for success, personal growth, continuation of family tradition, achievement of life goals, independence, the job security, coincidence, experience, good business idea, dissatisfaction with the work, and influence from relatives or friends. In the first step, the model included all the statements from this part of the questionnaire. The Bartlett test showed that the correlation matrix has significant correlations (sig.=0.000 for all variables). The KMO measure of sampling adequacy had the value of 0.790, which points to the suitability of the chosen variables; seven variables were omitted because of the low communality values.
By performing factor analysis (principal axis factoring) and direct oblimin rotation, we obtained two factors (Table I):
F1: PERS_REAS (personal reasons).
F2: ECON_REAS (economic reasons).
Personal traits
Based on the literature and previous research in this area, we chose seven characteristics of entrepreneurs (desire for independence, need for achievement, self-confidence, locus of control, risk taking propensity, knowledge and information, and recognition of opportunity). They were measured with a total of 49 variables. In the first step, the model included all the 49 statements from this part of the questionnaire. The Bartlett test showed that the correlation matrix has significant correlations (sig.=0.000 for all variables). The KMO measure of sampling adequacy was valued at 0.791, which indicates the suitability of the chosen variables; eight variables were omitted because of the low communality values; seven other variables were omitted because of low patterns. The scree plot showed that the possible number of factors was between four and seven. We checked all the potential solutions, concluding that the most suitable solution was the one with five factors (Table II).
By performing factor analysis (principal axis factoring) and direct oblimin rotation, we obtained five factors:
F1: OCCAS_ACHIEVE (occasional achievement).
F2: RISK_PROP (risk propensity).
F3: SELF_NEFF (self-efficacy).
F4: NEED_INDEPEND (need for independence).
F5: INF (informed).
Environmental factors
On the basis of the literature and previous research in this area, we chose several variables measuring environmental factors. In the first step, the model included all the statements from this part of the questionnaire. The Bartlett test showed that the correlation matrix has significant correlations (sig.=0.000 for all variables). The KMO measure of sampling adequacy was valued at 0.794, which points to the suitability of the chosen variables; ten variables were omitted because of the low communality values, 13 others because of low patterns. The scree plot showed that the possible number of factors was between five and seven. We checked all the potential solutions, concluding that the most suitable solution was the one with five factors (Table III).
By performing factor analysis (principal axis factoring) and direct oblimin rotation, we obtained five factors:
F1: CULT_SOC (cultural and social norms).
F2: GOV_ASS (government assistance).
F3: EDU (education).
F4: FIN_SUP (financial support).
F5: MARKET (market accessibility).
Performance
In the first step, the model included all the 14 statements from this part of the questionnaire. The Bartlett test showed that the correlation matrix has significant correlations (sig.=0.000 for all variables). The KMO measure of sampling adequacy was valued at 0.824, which points to the suitability of the chosen variables; one variable was omitted because of the low communality value, two others because of low patterns. The scree plot showed that the possible number of factors was between two and three. We checked both solutions, concluding that the most suitable solution was the one with two factors (Table IV).
By performing factor analysis (principal axis factoring) and direct oblimin rotation, we obtained two factors:
F1: PERS_PERF (personal performance).
F2: BUSS_PERF (business performance).
The impact of the personal and environmental factors on performance
In this section, we will analyse whether the assumption of factors of establishment (personal and environmental factors) affects the performance of the entrepreneur. On the basis of factor analysis for the measured variables of performance of the entrepreneur, we obtained two factors: PERS_PERF (personal performance) and BUSS_PERF (business performance). According to this result, we propose the arranged model of SMEs performance (Figure 2) and further we posit four hypotheses instead of two:
H1a. The personal factors, including founding reasons and personality traits, affect the personal performance of the entrepreneur.
H1b. The personal factors, including founding reasons and personality traits, affect the business performance of the entrepreneur.
H2a. The environmental factors of business start-up affect the personal performance of the entrepreneur.
H2b. The environmental factors of business start-up affect the business performance of the entrepreneur.
Using multiple linear regressions, we first examined the influence of personal and environmental factors of the firm's establishment on personal performance and thus tested H1a. Later, we examined the influence of personal and environmental factors of the firm's establishment on business performance.
The estimated multivariate regression model for the first case is presented below (Table V): Equation 1 In the first attempt, all factors of personality (founding reasons and personality traits) and environmental factors, in a total of 12 explanatory variables, were included in the regression model. Based on the adjusted R2 (coefficient of determination), it can be concluded that the hypothetical factors could explain only the fifth of the variation of the dependent variable, i.e. personal performance. The reasons for the low explanatory value were probably the existence of certain factors that affect our dependent variable and were disregarded in our analysis.
In three consecutive steps, the variables with the highest level of significance test of independence have been gradually diverted. In the final model, we included only variables for which it is possible to confirm a significant influence on the dependent variable. An evaluation of the final model is given in Table VI.
The estimated multivariate regression model for the second case is presented below: Equation 2 In the first attempt, all factors of personality (founding reasons and personality traits) and environmental factors; a total of 12 explanatory variables was included in the regression model. On the basis of the adjusted R2 (coefficient of determination), it can be concluded that the hypothetical factors could explain only the fifth of the variation of the dependent variable, i.e. business performance.
In two consecutive steps, variables with the highest level of significance test of independence have been gradually diverted. In the final model, we included only variables for which it is possible to confirm a significant influence on the dependent variable. An evaluation of the final model is given in Tables VII and VIII.
5 Findings
Among the personality factors of the firm's establishment, the risk propensity, need for independence and personal reasons have shown a significant impact on the business performance.
On the basis of the negative values of the partial regression coefficient, we can conclude that the link between risk propensity and the entrepreneur's personal performance in the company is negative, which means that the more the entrepreneur is risk favourable, the less he/she perceives his/her own self-performance, while other factors are unchanged. All current definitions of “entrepreneur” mention the risk-taking. Entrepreneurs are averse to risks that are uncontrollable. However, it is often due to their excessive self-confidence and conviction about their own abilities that they enter risky situations (Wu and Knott, 2005). The firm's founder's willingness to take risks is negatively correlated with the performance of the firm (Miner et al., 1989; Forlani and Mullins, 2000). The entrepreneur is always attempting to understand and control the risk and reduce it to the minimum extent possible.
The higher the entrepreneur's desire for independence, the greater the personal performance is, while other factors remain unchanged. It also includes taking responsibility for one's own life. Positive relationships between the entrepreneur's high desire for independence and performance of the firm are found by Keeley and Kapp (1994). This positive correlation can be justified by the fact that those who have a desire for independence take responsibility for their own assessment, they trust in themselves, and therefore it is easier to realise their goals and to be satisfied with their work and professional development in the firm.
The more personal the founding reasons are, the greater the personal performance of entrepreneurs is, all other factors being equal. The goals that are set by entrepreneurs and are related to their personal characteristics have a significant impact on the dynamism of the entrepreneur (Welter, 2001; Wiklund, 2001).
Business performance has proved to be affected mostly by the need for independence, followed by initial personal reasons, and risk propensity. The impacts of these factors on the business performance of the firm have remarkably similar explanations, as they have already been presented in the analysis of personal performance.
On the basis of the absolute value of the standardised regression coefficient, we can realise that the need for independence has a negative impact on the business performance. Therefore, the greater the entrepreneurs' need to be independent, the lower the business performance is, when other factors are unchanged. The higher the risk propensity of the entrepreneur, the higher the business performance is, when other factors remain unchanged.
The entrepreneur is always trying to understand risk, control it and reduce it as far as possible, which obviously has a positive impact on the business performance of the entrepreneur. The reason for the negative correlation between the propensity for risk and the business performance may also be explained by the fact that the entrepreneur who reluctantly takes risks will be more satisfied with the firm's business performance.
The negative correlation between the availability of the market and business performance is perfectly understandable, since this means that the easier it is for the entrepreneur to enter the market (especially in the context of acquiring the company's market share) the lower risk of the failure of enterprise business is, and vice versa, while the independent factors remain unchanged. Market accessibility as an environmental factor in the regression analysis has the least impact on the business performance of the company (the value of the standardised regression coefficient is 0.178).
The regression analysis showed that all the factors that have a significant effect on the business performance of the company are remarkably similar to the parameters in the regression analysis of personal performance. Therefore, we can generally conclude that both aspects of the performance of the entrepreneur (personal and business) are affected by the following factors: need for independence, risk propensity, and personal founding reasons. In addition to these, however, both aspects of performance differ in one specific factor, which also justifies the division of performance into two aspects, i.e. for personal performance, the factor self-efficiency is significant, and factor market accessibility for business performance is also significant.
6 Limitations, implications
Some limitations of this study are recognised. The abovementioned sample, which was limited to Slovenian young SMEs and somewhat small (116 observations) for the performed factor analyses, which would provide better results if the sample size were 300 or more observations. Further, a cross-sectional study design was conducted, and it represent the situation in companies on a certain date, meaning that our study lacks a longitudinal component, which could lead to a better validity and applicability of modelled relationships. Finally, the data were collected mostly from entrepreneurs of micro- and small firms.
It is interesting to note that of the two categories of firm success (personal factors and environmental factors) examined in this research, besides some personal factors only marketing conditions (from the set of environmental factors) have a positive influence on the firm's performance, more precisely on the firm's business performance. Therefore, at a minimum, the following implication for entrepreneurs can be drawn from this research. The entrepreneurs of newly established SMEs should focus more on market conditions, on market knowledge, on customer relationship and should take care to introduce marketing innovations in their business model. They should make continuous improvements in their market activities.
7 Conclusion
This quantitative study was carried out with the method of survey questionnaires on a sample of micro- and small companies. By setting a high number of questions, we wished to explain the influence of different personal as well as environmental factors on the performance of the entrepreneur. Using factor analysis, we extracted the common factors that explain the observed variables. Most of the recent literature advocates the influence of personal factors and environmental factors, but in practice most of the research is based solely on the personal factors of the firm's establishment. Personal reasons arise from each individual and may include demographic factors, individual personality traits, and the reasons for the firm's establishment, while the environmental factors arise from the social, cultural and political contexts. Demographic factors were discussed in isolation from personality factors, mainly due to the nature of their statistical analysis.
Many scholars studied factors affecting success in young SMEs (Bruderl and Preisendorfer, 1998; Reid and Smith, 2000; Baron and Markman, 2003). The results of these studies were quite different; they depend on which measure is used to consider the entrepreneurs' success. Consequently, we can be justified when wondering about what the appropriate measures for the success of newly established small business ventures are. We agree with the authors assuming that there are some doubts about relying on financial indicators of performance. Multiple dimensions of performance should be included when studying new SME performance. This is also reflected in our study in which we measured the performance via 14 variables (objective dimensions, and subjective dimensions) in particular because of the characteristics of the unit of analysis. Using the principal components method, we wanted to create a new variable. We obtained two factors: personal performance and business performance. This is entirely consistent with what we have thus far taken from the literature. Given the specificities of newly established SMEs, it is impossible to measure their success solely in financial indicators; as a result, how the entrepreneur is satisfied with his success it is indeed very important, even if it is not reflected in financial results.
Therefore, this study is an original work since it identifies which indicators influence the success (personal and business) in the first years of their companies. We revealed the heterogeneity of the measures for performance and their different natures (from financial indicators to those related to the entrepreneur satisfaction). Thus, one of the most noteworthy findings of our research is that, in spite of the fact that the most commonly used indicators for the firm performance in the literature are financial, we should not neglect the so-called perceived performance. It is how the entrepreneur is satisfied with his success.
Moreover, the research observed the influence of entrepreneurs' personal factors and environmental factors for the firm's performance. As previously mentioned, the results demonstrate that risk propensity, self-efficacy and need for independence are the most significant (and also statistically significant) factors influencing personal performance. We did not find any environmental factor as being more important than the personal performance of the entrepreneur. For the business performance, we determined that, besides personal factors (specifically risk propensity, the need for independence and personal reasons), the market conditions are also crucial. We can establish that the personal performance is affected only by personal factors, while the perceived business performance is affected both by personal as well as environmental factors.
About the authors
Doris Omerzel Gomezelj completed her Master studies at the Faculty of Economics in Ljubljana, Slovenia. She finished her PhD at the UP Faculty of Management Koper. She teaches courses in entrepreneurship to under- and postgraduate students and actively researches within business and education area. She has authored or co-authored various scientific papers and is currently involved in different national and European projects and networks. Her best papers, presenting the results of her research work, are published in appreciated international scientific journals as: Industrial Management and Data Systems (Critical entrepreneur knowledge dimensions for the SME performance), Tourism Management (Destination competitiveness – applying different models, the case of Slovenia), African Journal of Business Management (The impact of knowledge management on SME growth and profitability: a structural equation modelling study), Baltic Journal of Management (Developing and testing a multi-dimensional knowledge management model on Slovenian SMEs), Journal of East European Management Studies (Knowledge management and organisational culture in higher education institutions). Doris Omerzel Gomezelj is the corresponding author and can be contacted at: [email protected]
Irena Kušce completed her Master studies at UP Faculty of Management Koper. Her research area is the entrepreneurship. She studies the determinants of the new business start-up and their impact on the entrepreneurial desire of firm growth and perceived successfulness.
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